Thank you for your concern, edamo.
My note was in response to the story of the person who bought stock on margin and lost all his money because of margin calls. My message was that since options are not traded on margin, on can control the risk buy trading options. Further, one is exposing himself to unlimited risk by selling naked options - that can take his or her balance to zero.
I have been trading options for the last few years. I have played most strategies: naked sells, spreads, butterflies, diagonals, LEAPs, covered calls, straddles, strangles - you name it. I have also read many books on options trading and am fully aware of the risks associated with them. After experimenting with most strategies, I have settled on simplest of all - buying options to sell them at a profit, based on the underlying. I have done reasonably well with them. Being a short term trader, I do not have patience to carry the short options to their expiration to see if they will work.
I do not wish to own stocks in my trading account. Now that stupid AFFX has been put to me, I am trying to salvage it by covered calls and complicating my life. I have also made mistakes of exercising some calls in QCOM,JDSU,CMGI, etc. Even though they are in profit, I notice that owning stocks tie up a lot of capital.
In nutshell,
Long options = limited risk, unlimited profit potential
short options = unlimited risk, limited profit potential.
I do not have any desire to be left holding a short end of the stick!
I believe Taxman has similar feelings.
Regards:
GP |
